An Overview of the Amendments to Article 8(23A) of the Cyprus Income Tax Law

In recent years, Cyprus has introduced several amendments to its income tax legislation, particularly in relation to Article 8(23A). This article provides a 50% exemption from income tax on the employment-related remuneration of eligible individuals, subject to certain conditions. In this comprehensive guide, we will explore the latest amendments to Article 8(23A) and their implications for taxpayers in Cyprus.

Amended Definition of “First Employment in the Republic”

One of the key changes introduced by the amendments to Article 8(23A) is the amended definition of “first employment in the Republic.” Previously, an individual was considered to have commenced their first employment in Cyprus when they exercised salaried services in the country for the first time, disregarding occasional or part-time work for a maximum of 120 days in a tax year. However, under the new legislation, an individual is now deemed to have commenced their first employment in Cyprus only after a period of 15 consecutive tax years during which they did not engage in any employment in the country. This expansion of the definition allows individuals who have been residing outside Cyprus for an extended period to qualify for the exemption upon their return.

Eligibility for the 50% Exemption

Under the previous version of Article 8(23A), the 50% exemption was applicable only to employment income derived from first employment in Cyprus, and it ceased to apply once the individual terminated their first employment. However, the amended legislation now allows eligible individuals to benefit from the 50% exemption on income arising from any employment in Cyprus, provided they meet the requirements for first employment as specified in the amended definition.

Extended Period of Non-Cyprus Tax Residency

Another significant change brought about by the amendments is the extension of the period of non-Cyprus tax residency prior to the commencement of first employment in Cyprus. Previously, an individual had to be a non-Cyprus tax resident for at least 10 consecutive years to be eligible for the exemption. However, the amended legislation now requires a period of at least 15 consecutive years of non-Cyprus tax residency prior to the commencement of first employment in Cyprus. This extension was implemented as a trade-off for allowing individuals to change employers during the exemption eligibility period and still qualify for the 50% exemption.

Transitional Provisions for Individuals Eligible Under the Previous Version

To ensure a smooth transition, the amended legislation includes special provisions for individuals who were eligible for the 50% exemption under the previous version of Article 8(23A) but do not meet all the conditions under the amended version. These individuals can continue to claim the exemption as per the provisions of the previous version, provided they satisfy all the relevant conditions that were in place before the amendments came into effect. However, it is important to note that the exemption will apply only to employment income arising from the individual’s first employment in Cyprus.

Overview of the 8(23A) Exemption under the Amended Legislation

According to the amended provisions of Article 8(23A), individuals who commence their first employment in Cyprus from 1 January 2022 onwards may be eligible for a 50% exemption on their employment income, subject to certain conditions. These conditions include:

1. The individual must not have been a Cyprus tax resident for at least 15 consecutive years prior to the commencement of their first employment in Cyprus.
2. The annual remuneration from employment in Cyprus must exceed EUR55,000. This threshold can be achieved either in the first or second year of employment.

The exemption is available for a maximum period of 17 tax years, starting from the year of commencement of first employment in Cyprus. It is important to note that if the conditions for the exemption are not met in a particular tax year, the exemption will not be granted for that specific year.

Grandfathering Provisions

The amending legislation also includes grandfathering provisions that allow individuals who commenced their first employment in Cyprus before 2022 to benefit from the amended Article 8(23A) exemption under certain circumstances. These circumstances include individuals who had continuous employment in Cyprus from the year of commencement of their employment up until the tax year 2021 and who:

• Benefited from the exemption provided in Article 8(23) or
• Commenced their first employment in Cyprus between the years 2016 and 2021 with an annual remuneration exceeding EUR55,000 or
• Commenced their first employment in Cyprus between the years 2016 and 2021 with an annual remuneration not exceeding EUR55,000 but had their remuneration increased to exceed EUR55,000 within six months from the publication of the Income Tax (Amending) (No. 6) Law of 2022.

These provisions ensure that individuals who were eligible for the exemption under the previous version of Article 8(23A) can still avail themselves of the benefits provided, even if they do not meet the conditions of the amended version.

Conclusion

The amendments to Article 8(23A) of the Cyprus Income Tax Law have introduced significant changes to the eligibility criteria and scope of the 50% exemption on employment remuneration. These changes provide greater flexibility for individuals to qualify for the exemption and allow for the continuation of the exemption even in cases of changing employers. It is important for taxpayers in Cyprus to understand these amendments and ensure compliance with the new requirements to take advantage of the available tax benefits.

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